The study found that the bursting of the housing bubble in 2007, the financial meltdown in 2008 and the most severe recession since the Great Depression have destabilized the economic security of the Baby Boom generation of Americans—those born between 1946 and 1964—just at the time when they are approaching retirement. Although the stock market has recovered somewhat since hitting a low in March 2009, Baby Boomers have little time left before retirement to rebuild the wealth they lost in the market retrenchment. As a result, many boomers will be even more dependent than they expected on Social Security, Medicare and, for some, Medicaid, to provide them with a degree of security after they stop working.

Changing Fortunes

The issue brief—written by Greg Anrig, vice president for policy and programs, and Millie Parekh, a researcher at The Century Foundation, a nonprofit public policy research institution—finds that, prior to the housing and investment market collapse, many Baby Boomers benefited from a surge in asset prices over the previous two decades, enjoying large increases in the value of their homes and retirement savings plans. However, savings plans, 401(k)s, individual retirement accounts and other investments have become depleted, not only because of the market’s decline but also because individuals withdrew funds during the crisis, often incurring penalties. Even more significant for most Baby Boomers, the housing equity that they counted on as being their major asset in retirement has plummeted in value and remains far lower than it was just a couple of years earlier.

The authors cite studies that show that a large portion of the Baby Boom cohort has not accumulated sufficient retirement savings and other assets to be prepared adequately for retirement. A
McKinsey Quarterly article, "Serving Aging Baby Boomers," found that only about a quarter of boomers were prepared for retirement, while other studies estimate that 45 percent of boomers will be “at risk” in maintaining their standard of living during their retirement. These studies highlight how stagnating incomes, low savings rates, the shift in employer pensions from defined benefit to defined contribution plans and weak public knowledge about matters related to financial planning have left a large share of the Baby Boom generation positioned poorly to provide for themselves after they have stopped working.

--------------------------------------------------------------Stagnating incomes, low savings rates and the shift todefined contribution plans have left boomerspoorly positioned after they stop working.--------------------------------------------------------------

The declines in housing values and investment markets have worsened the situation for those who will be seeking retirement soon, according to the issue brief. In 2008 alone, housing prices dropped an average of 33 percent, depleting the wealth of the majority of Baby Boomers who have relatively little savings beyond what they have invested in their home.

Concurrently, the 40 percent drop in equity markets in 2008 had a devastating effect on higher-net-worth Baby Boomers, for whom stock ownership is the predominant form of wealth. The net wealth for households with a head age 50 and over decreased by 25 percent from 2007 to 2009—amounting to an average loss of approximately $175,000 per household. The declines in housing and equity values have had an even more threatening impact on the less wealthy.

The authors acknowledge that spending for Medicare and Social Security is likely to increase as more of the 78 million Baby Boomers begin to retire. They warn that, as the debate over the deficit and the future of social insurance programs moves forward, these higher expenditures will spur critics of these programs to call for benefit reductions or the elimination of the programs entirely.

Delaying Gratification for a Better Retirement

Many Baby Boomers say they're willing to work longer and save more to secure a better retirement.
According to MainStay Investments'
Boomer Retirement Lifestyle Study, 76 percent of the U.S. boomers surveyed (ages 45-65 and not yet retired) say they are willing to spend less now to invest for a more comfortable lifestyle in the future. The survey was fielded from May 3-13, 2010.

"When it comes to lifestyle, Baby Boomers are redefining what constitutes a basic need and what they consider a luxury," said Matthew Leung, director and head of practice management programs at MainStay Investments, a subsidiary of insurer New York Life. "We have clearly expanded beyond the three traditionally thought-of necessities—clothes, food and shelter." According to the survey, the majority of Baby Boomers believe that an Internet connection, shopping for birthdays and special occasions, and pet care are basic needs. And about half of those surveyed consider annual family vacation or weekend getaways, having eldercare/home aid and funding children/grandchildren's education to be basic needs as well.

Forty percent of the boomers surveyed acknowledged that they will have to delay retirement in order to afford the lifestyle they want. Besides working longer, boomers are saving more, adjusting their portfolio allocations and seeking help from financial advisers—in that order.

Health Care Costs Are Biggest Threat

Virtually all Baby Boomers (98 percent) said health care coverage is not a luxury but a basic need—and a need that they are extremely concerned about being able to afford, the MainStay survey found. Almost three-quarters of respondents (74 percent) rated health care costs as their greatest or second greatest concern.

"While a majority of consumers are setting aside funds specifically for future health care costs, a whopping 41 percent are not doing anything specific to save for health care and will be relying on their retirement assets to cover health care and everything else," said Leung. "Given their lack of allocating pre-retirement income toward these looming costs, we find boomers' actions do not always reflect their greatest concerns."

More than half (55 percent) of the respondents indicated they would rather work longer to pay for health care expenses rather than downscale the lifestyle they desire in retirement. "Boomers essentially want it all," said Leung. But given their lack of retirement savings, many will be disappointed.

Survey Shows "Gen Y" in Financial Trouble

But personal traits, tech-savvy ways offer silver lining.

A financial storm may be brewing for many of the more than 87 million Americans age 18-34, popularly known as "Gen Y," according to a survey sponsored by payment services company Western Union.

Gen Y'ers are generally described as creative, independent and tech savvy, while at the same time they are sometimes seen as overly confident and impatient. Many also are in trouble financially, according to the latest Western Union Money Mindset Index, using data from a survey fielded in May 2010.

Waning Economic Condidence

Many Gen Y'ers are experiencing financial stress and difficulty in obtaining credit. Specifically, the survey found that:

Nearly 30 percent of Gen Y'ers report having difficulty in managing their spending, more than 20 percent wait longer to pay their bills, and 35 percent have borrowed money from friends or family members

More than one in three members of Gen Y say that their financial situation worsened in the prior six months.

About 27 percent of Gen Y survey participants have been turned down for a loan or line of credit.

60 percent of Gen Y'ers have not seen their credit score in the past year, and 44 percent have never seen their credit score.

"The silver lining is that, in spite of the difficult economy, Gen Y is engaging in money-savvy behaviors that can help build a better financial future," says David Shapiro, senior vice president, Western Union. "The Money Mindset Index identified Gen Y's use of tools such as online bill pay to manage their budget and credit standing. Factor in their high comfort level with web-based programs and budgeting tools, and Gen Y has a solid foundation for getting their finances back on track."